Why Butterflies Don’t Leave: Locational Behavior of Entrepreneurial Firms

Entrepreneurship is an important process in regional economic development. Especially the growth of new firms is of major significance to the commercialization of new ideas and employment growth. These growing new firms are transforming structurally like caterpillars turning into butterflies. However, like butterflies, they are at risk of leaving their region of origin for better places. This article analyzes how and why the spatial organization of firms develops subsequent to their start-up. A new conceptual framework and an empirical study of the life course of entrepreneurial firms are used to construct a theory on the firms’ locational behavior that explains that behavior as the outcome of a process of initiatives by entrepreneurs, enabled and constrained by resources, capabilities, and relations with stakeholders within and outside the firms. The study shows that entrepreneurs decide whether to move their firms outside their region of origin for different reasons in distinct phases of the firms’ life course. Being embedded in social networks, for example, is an important constraint on locational behavior during the early life course of a firm, but over time it becomes less important, and other mechanisms, such as sunk costs, increasingly determine a firm’s locational behavior. The development of spatial organization is also of major importance: when a multilocational spatial organization has been realized, it is much easier to move the headquarters to another region. The spatial organization of entrepreneurial firms co-evolves with the accumulation of the firms’ capabilities. A developmental approach that incorporates evolutionary mechanisms and recognizes human agency provides new insights into the age-old study of the location of firms.